FENCING ON A PURCHASED FARM

[Marie]

Client and his dad bought a farm in 2017  No fences were set  up on depreciation originally.  Now client thinks we should 

set up fences.  My thought I would have to set them up as a 2017 asset, which would leave only a few years left.  He's wanting to start depreciating this year.  I don't think so, am I wrong or right ?

[Slippery Pencil]

Can't start depreciating a 2017 asset this year.  Maybe a 3115 for which you'll bill him an arm and a leg.

[Lee B]

There may well be other land improvements that were overlooked back in 2017. Usually farm fencing is a 15 year asset.

 

 

[Marie]

father and son were in a partnership in 2017, but then dad decided to get out and just gave son the property and assets in2022.  Would that make a difference? 

[Slippery Pencil]

2 hours ago, Marie said:

Would that make a difference? 

I'm guessing that makes it a lot messier and thus, a lot more expensive to fix.  How much depreciation are we talking about?

[DANRVAN]

Farm and ranch fences are specifically listed under asset class 01.1 and are 7 year GDS.  Keep in mind these are pasture or range type fences, not corrals which are 15 year property.  New ones are made out of steel post and wire, and that is not cheap.  Neither is labor cost which varies with the terrain. 

Fences are often overlooked and I have used 3115 several times for that purpose.  

You need to reduce that basis of the land for the amount allocated to the fencing.

The client needs to make an estimate of the value at time the property was acquired considering: the condition, age of the fence, and replacement cost at the time.  You also have to consider partial ownership of boundary fences in some cases.

The last one I did came out to $93,000 which was about 1/2 the replacement value of about 10 miles of fence.  That was for a relatively small parcel of property.

This is right up my alley because I also do fencing as part of my other work.   I am starting on a couple mile project next week!

[DANRVAN]

4 hours ago, Slippery Pencil said:

Maybe a 3115 for which you'll bill him an arm and a leg.

For the above post my bill was about $900.  My job was to trace out the fences on a map and determine the length on a spreadsheet. Then input the estimated cost per foot.  The client then rated the various sections of the fences on a scale of 1 to 10, where "10" would be in new condition and "1" would be in total disrepair. The overall rating gave an estimated value of about 50% the cost of a brand new fence which was $93,000.

 

[Lion EA]

Is this a DIY project for a tax payer, or does it require an unbiased third-party cost segregator to break out the land from the fences from other land improvements to depreciate? Like getting a qualified appraiser.

[DANRVAN]

1 hour ago, Lion EA said:

Like getting a qualified appraiser.

I have never found an appraiser who will put a value on a fence, even for large estates with miles upon miles of fencing.

It is a good faith reasonable estimate following AICPA standards.  Otherwise clients are missing out on allowable depreciation.

On the other hand, I have seen buyers (non-clients) put values way beyond what the actual replacement cost would be.